Supply Chain Management
In 2015, we launched the Quality First strategy and fully embedded it into our procurement strategy, procurement process, and supplier management. To urge our suppliers to continuously improve, we adopted the “Top Four Initiative”, which aims to achieve IT-based management, promote production automation, develop employee expertise, and retain staff in key positions. Sustainability is now a key requirement for our products and production process. In fact, it has become a key element of our product lifecycle, value chain operations, and strategies for reducing costs and gaining differentiated competitive advantages. By emphasizing the business benefits of sustainability, we have developed our competitive advantage and identified opportunities for customer satisfaction, risk control, efficiency enhancement, and business innovation. In addition, we have made continuous improvements by analyzing the cost effectiveness of sustainability efforts.
In 2015, we focused on the following areas as we managed supply chain sustainability:
- Better cooperation with customers: Sustainability was further embedded into our procurement process. In cooperation with our customers, we implemented joint audits and capability development projects, identified business opportunities concerning sustainability, and explored innovative practices and business cases relating to sustainability.
- Better cooperation with suppliers: Sustainability was assigned greater weight in our supplier qualification and performance appraisals. We redoubled our efforts to train suppliers, gave them the required support, and shared experiences. Our business-driven approach to supplier management encouraged our suppliers to improve their sustainability performance.
- Better cooperation with governments and NGOs: This allowed us to increase our supervision of suppliers’ green practices and transparency. We identified market factors that promoted a greener supply chain. To help suppliers further reduce energy consumption and emissions, we used software from the Institute of Public and Environmental Affairs (IPE) to regularly query data on 465 key suppliers’ environmental performance. We also worked with a certain government agency on a pilot program for a greener supply chain.
- Better management of conflict minerals: In line with industry best practices, we analyzed the latest trends related to the conflict minerals problem, improved our internal management process, and pushed for the use of smelters certified by the Conflict Free Sourcing Initiative (CFSI). We investigated 977 suppliers based on the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-affected and High-risk Areas and the CFSI conflict mineral questionnaire.
- Better cooperation with industry players: We participated in discussing and setting industry standards, and played a leading role in developing the IPC-1401 standard for supply chain sustainability. We also encouraged peer cooperation and collaboration with upstream and downstream supply chain players, in order to convert best practices into industry standards and actions. Huawei is a partner of many academic institutions, including the Humboldt University of Berlin (Germany), Waseda University (Japan), Peking University (China), and the Chinese Academy of Social Sciences.
In accordance with the Electronic Industry Code of Conduct (EICC) and the social responsibility guide of the Joint Audit Cooperation (JAC), Huawei has formulated the Supplier Sustainability Agreement, which covers five areas: labor, health and safety, the environment, business ethics, and management systems.
Huawei requi res that al l our suppliers sign the Supplier Sustainability Agreement, and this requirement is a prerequisite for supplier qualification, auditing, and performance appraisal.In addition to applicable laws, regulations, and international standards, our suppliers are required to incorporate sustainability into their product and production process, embed sustainability into business decision making and daily operations, and establish effective management systems. These efforts will enable our suppliers to manage risks, work more efficiently, and hone their competitive edge.
Huawei reserves the right to inspect or audit suppliers at any time, in order to assess whether they meet the requirements specified in the Supplier Sustainability Agreement. We also require our suppliers to extend the same requirements to their own vendors.
We implement a comprehensive qualification process for all new suppliers, including suppliers’ sustainability systems. This qualification process examines suppliers’ capacity and their compliance with applicable laws, regulations, and the Supplier Sustainability Agreement. This process includes three stages, in which different departments shortlist, audit, and review suppliers to ensure fairness throughout the process.
- Shortlisting phase: Sustainability requirements are one of the minimum conditions that potential suppliers must meet. Those who fail this phase are excluded before selection begins.
- Qualification phase: Onsite audits are performed to assess whether a supplier meets the criteria stipulated in the Supplier Sustainability Agreement. The audits include activities such as management interviews, employee interviews, document reviews, onsite inspections, and third-party information searches.
- Review phase: An expert panel reviews the results of the supplier audit. Compliance with sustainability requirements is the precondition for acceptance. Any supplier that fails to meet the standards will not be accepted. Suppliers are also required to conduct regular internal audits to ensure continued compliance with Huawei’s sustainability requirements and make continuous improvements.
We divide suppliers into different categories to ensure their continued compliance with our sustainability requirements. Every year, we audit suppliers, which combined represent 90% of our procurement value, and assign them one of three priority levels: high, medium, and low. On this basis, a list of suppliers which require particular attention is drawn up. The factors considered
during the audits are: the country where a supplier is based; product/material type; potentially high-risk manufacturing processes; business volume and relationships; sustainability performance; environmental risks; and risk management systems.
Every year, we conduct onsite audits on medium-priority and high-priority suppliers. Before conducting the audits, we require suppliers to perform self-checks based on the terms of the Supplier Sustainability Agreement, so as to identify their own strengths and weaknesses and create correction plans. During onsite audits, we assess each supplier’s ability to manage its own sustainability, and identify any potential problems, particularly high-risk problems and issues regarding management systems and capabilities.
Routine audits are a key part of our approach to supplier sustainability management: We focus on using audits to discuss with suppliers’ management teams about their buy-in and ownership concerning sustainability, find out where problems are, and then solve them and prevent future problems.
If we discover a problem during an audit, we help the involved supplier analyze root causes, identify ways to solve it, and take targeted actions using the Check, Root cause, Correct, Prevent, and Evaluate (CRCPE) methodology. All problems are logged in the Supplier Corrective Action.Requirement (SCAR) system for follow-up until closure. We are always ready to help our suppliers improve.
We appraise suppliers’ sustainability performance annually based on onsite audit results and improvements. Performance appraisals cover key factors such as labor, health and safety, the environment, business ethics, and management systems. Suppliers are classified into four grades (A, B, C, and D) based on their sustainability performance, which represent their performance level in descending order. In 2015, we appraised the performance of 707 suppliers and rated 324, 276, 104, and 0 as A, B, C, and D, respectively.
The sustainability performance of each supplier is published internally, and is communicated by our procurement managers to the supplier’s managers to drive continuous improvement. Our amount of business with each supplier depends on their performance, which is also a factor considered in our tendering, supplier selection, portfolio management, and other processes. Suppliers that perform well are given higher procurement quotas and more business opportunities, while the reverse is true for low-performing suppliers. Depending on the situation, we instruct low-performing suppliers to correct existing issues within a specified timeframe and may even terminate business relationships with suppliers that display exceptionally poor performance. In 2015, we restricted the tendering rights or reduced the quotas of three suppliers due to poor sustainability performance.
Sustainability awareness and capability development are crucial to suppliers' self-management. We provide training and coaching for suppliers as necessary. Suppliers are also encouraged to integrate sustainability into their business models and strategies, view sustainability as the key to reducing business risks, enhance operating efficiency, and develop a competitive edge in cost or differentiation. Additionally, we continuously help suppliers identify opportunities through root cause analysis and cost effectiveness analysis. By benchmarking themselves against industry best practices, suppliers can optimize their sustainability management, and proactively integrate sustainability into their operations.
Joint Supplier Capability Improvement Project with a Customer
Huawei is a member of Together for Sustainability, a supplier capability improvement program launched by Deutsche Telekom in partnership with three suppliers and an international consultancy. The program encourages participants to integrate sustainability into their businesses, explore improvement opportunities through benchmarking, adopt sustainable approaches for greater management efficiency, and regularly review improvement progress.
Through their unwavering efforts to improve capabilities, the three suppliers have made great progress in sustainability management. For example, one of the suppliers has achieved better customer satisfaction, operating efficiency, cost reduction, energy performance, and working environment. Ultimately, the supplier earned an award from Deutsche Telekom.
"We have made huge progress in sustainability, and our efforts have been recognized by multiple stakeholders. We'd like to thank Huawei's CSR expert team for their training and instruction. We are delighted to have the chance to work with this professional team."
–Supplier's compliance manager
The Huawei Global Supplier Sustainability Conference and Regional Supplier Conferences have been held annually since 2009. At these conferences, Huawei and our stakeholders (e.g., customers and suppliers) share ideas and learn from each other. These conferences are well received as they allow our suppliers to understand the needs of Huawei and our customers, stay updated on industry trends, learn about sustainability best practices, and optimize their sustainability management.
Co-building a Learning Supply Chain; Accelerating a Sustainable Ecosystem
In September 2015, Huawei held the Global Supplier Sustainability Conference with the theme of “Co-building a learning supply chain; accelerating a sustainable ecosystem.” The event was attended by over 220 guests. Huawei’s Senior Vice President and Chief Supply Officer, Mr. Liang Hua explained the importance of incorporating sustainability thinking into the product lifecycle and value chain. He remarked that throughout each stage, we should encourage suppliers to identify opportunities for improvements that make our products and services more competitive. Mr. Liang also made it clear that suppliers who consistently provide sustainably-made and quality products will receive more business opportunities from Huawei.
Global Supplier Sustainability Conference
“Conflict minerals” refer to tin, tantalum, tungsten, gold, and other minerals that are mined under conditions of armed conflict, notably in the Democratic Republic of the Congo and adjoining countries. The profits from the sale of these minerals finance ongoing armed conflicts in countries where they are mined or smelted. The problem of conflict minerals has drawn the attention of the electronics industry and other industries. Governments in the US and Europe have also passed laws to address the problem. The types of conflict minerals and the involved regions are expanding. The problem is complex and will only be resolved through collective commitment and deep cooperation between businesses, governments, and NGOs.
Huawei takes the problem of conflict minerals very seriously. We began to address this problem in 2002, and have released an open statement to announce that we will not procure or support the use of conflict minerals. We require all suppliers to not procure conflict minerals. We also ask our suppliers to cascade this requirement to their suppliers. Through the Conflict Free Sourcing Initiative (CFSI), we have worked with companies around the world to jointly address this problem, using the CFSI conflict mineral questionnaire and the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas to survey the supply chain and share results with our customers. In 2015, we teamed up with Ernst & Young to analyze conflict mineral trends worldwide, and refined our conflict mineral management process and solution on the basis of leading management practices.
Huawei Statement on Conflict Minerals:
In accordance with the OECD Due Diligence Guidance, we evaluated all materials we used, and developed a list of materials and suppliers that involve conflict minerals in 2015. We also used the CFSI conflict mineral questionnaire to investigate 977 suppliers. Following this, we analyzed supplier feedback, developed questionnaire summaries, launched due diligence concerning conflict minerals, and shared investigation results with our customers. We encouraged suppliers to use smelters with the Conflict Free Smelter (CFS) certification, and urged uncertified smelters to become certified.
We will continue to play an active role in the programs organized by industry organizations such as GeSI, Association Connecting Electronics Industries (IPC), and CFSI. Together with our customers and suppliers, we will actively seek sustainable solutions to the problem of conflict minerals.
Cooperation with industry players is a key factor when it comes to building a sustainable supply chain. Together with industry players, we keep a close eye on sustainability opportunities and challenges, hold interdisciplinary dialogs, and cooperate with industry organizations. Maintaining a consistent understanding, taking coordinated actions, and sharing resources helps us combine our strengths and gain leverage on these issues. Ultimately, we can boost industry competitiveness.
In 2014, IPC entrusted Huawei and Flextronics to lead the development of IPC-1401, a standard for supply chain sustainability. IPC-1401 uses the CSR criteria of the ISO26000 standard as customer requirements for products and production process. IPC-1401 embeds sustainability into procurement processes, and encourages all players in the supply chain to collaborate with each other. In 2015, the activities of the IPC-1401 technology group attracted nearly 150 experts from electronics companies, original equipment manufacturers, electronic component makers, research institutions, and industry associations. The IPC-1401 technology group held six technical workshops in Shenzhen, Beijing, Shanghai, and Guangzhou, China. The draft standard (open for discussion) has been completed and the final version will be released in 2016.
Huawei has also played a key role in the development of the CSR standard for China’s ICT industry. Based on the framework of the ISO9001 management system, the standard incorporates CSR requirements into companies’ value chain. It will be released in 2016.